SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended October 31, 1995
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from _____ to _____
Commission File No. 1-6309
HRE PROPERTIES
(Exact name of registrant as specified in its charter)
MASSACHUSETTS 04-2458042
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
321 RAILROAD AVENUE
GREENWICH, CONNECTICUT 06830
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (203) 863-8200
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
Common Shares, without par value New York Stock Exchange
Preferred Share Purchase Rights New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes /x/ No / /
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of the Registrant's knowledge, in
definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this Form 10-K./x/
The aggregate market value of the voting stock held by non-affiliates
of the Registrant as of January 16, 1996: Common Shares,
without par value - $50,680,000.
Indicate the number of shares outstanding of each of the Registrant's
classes of common stock, as of the latest practicable date: 5,367,226 Common
Shares, without par value, as of January 16, 1996.
DOCUMENTS INCORPORATED BY REFERENCE
Proxy Statement for Annual Meeting of Shareholders to be held on March
13, 1996 (certain parts as indicated herein) (Part III).
PART I
Item I. Business.
HRE Properties (the "Trust") was organized on July 7, 1969
as an unincorporated business trust under the laws of the
Commonwealth of Massachusetts pursuant to a Declaration of Trust
dated July 7, 1969, as amended.
The Trust has qualified and has elected to be taxed as a
real estate investment trust under Sections 856-858 of the
Internal Revenue Code of 1986, as amended (the "Code"). Pursuant
to such provisions of the Code, a trust which distributes at
least 95% of its real estate investment trust taxable income to
its shareholders each year and which meets certain other
conditions will not be taxed on that portion of its taxable
income which is distributed to its shareholders. The Trust
intends to continue to qualify as a real estate investment trust
for federal income tax purposes.
Description of Business
The Trust's principal business is the ownership of real
estate investments which consist principally of equity
investments in income-producing properties, with primary emphasis
on properties in the eastern part of the United States. The
Trust owns and manages a portfolio of retail properties, office
buildings, and industrial properties. The Trust also seeks to
identify desirable properties for acquisitions which it makes in
the normal course of business. In addition, the Trust regularly
reviews its portfolio and from time to time considers and makes
the sale of certain properties.
At October 31, 1995, the Trust owned or had an equity
interest in twenty-one properties comprised of shopping centers,
single tenant retail stores, office buildings and service and
distribution facilities located in thirteen states throughout the
United States, containing a total of 3,062,000 square feet of
gross leasable space. For a description of the Trust's
individual investments, see Item 2.
Of the twenty-one properties in the Trust's portfolio,
twelve were retail properties (including eight shopping centers),
containing in the aggregate 1,720,000 square feet of gross
leasable space. The Trust's retail properties collectively had
195 tenants providing a wide range of retail products and
services. Major tenants include supermarkets, national discount
department stores and a movie theater. At October 31, 1995, the
Trust's overall leased rate at its retail properties was 96%.
Five properties in the Trust's portfolio are office
buildings, totalling 421,000 square feet of gross leasable space.
The office properties collectively have more than 50 tenants
which offer a wide range of services and include insurance
companies, a major engineering firm and government agencies. At
October 31, 1995, the Trust's overall leased rate in its office
properties was 94%.
Four properties in the Trust's portfolio are service and
distribution facilities totalling 921,000 square feet of gross
leasable space, consisting of two automobile and truck parts
distribution warehouses, one truck sales and service center and
one automobile tire distribution facility. The service and
distribution facilities are net leased under long-term lease
arrangements whereby the tenant pays all taxes, insurance,
maintenance and other operating costs of the property during the
term of the lease.
At October 31, 1995, the Trust also owned a portfolio of
mortgage notes receivable consisting of fixed rate mortgages
aggregating $3,937,000. The fixed rate mortgages are secured by
retail properties sold by the Trust in prior years.
In the five year period ended October 31, 1995, the Trust
acquired eight properties totalling 829,700 square feet of gross
leasable space at an aggregate cost of $73.6 million. The
properties were acquired with cash and $38.5 million of non-
recourse first mortgage loans. In the same period, the Trust
spent nearly $9.1 million to expand, renovate, improve and lease
its existing properties. Such activities were funded primarily
from available cash. Since 1992, the Trust has selectively sold
or disposed of nine of properties totalling 1,242,000 square feet
of gross leasable space which the Trust
determined no longer fit into its strategic plans.
Recent Developments
In fiscal 1995, the Board of Trustees expanded and refined
the strategic objectives of the Trust to refocus the real estate
portfolio into one of self-managed retail properties located in
the Northeast and authorized a plan to sell the non-core
properties of the Trust in the normal course of business over the
next several years. The Trust believes that economic conditions
in the real estate markets where the Trust's non-core properties
are located have improved and that opportunities to sell those
properties over the next several years have also improved. At
October 31, 1995, the non-core properties total eleven
properties, having an aggregate net book value of $46,212,000 and
comprise all of the Trust's office (with the exception of the
Trust's headquarters), distribution and service facilities, and
certain retail properties located outside of the Northeast region
of the United States. As a result of this change in investment
strategy, the Trust recorded a non-cash charge of $7,000,000 in
fiscal 1995, to writedown the carrying value of two of the non-
core properties to their estimated net realizable values. The
Trust expects that the ultimate sales of the non-core properties
over the next several years will result in net gains to the Trust.
During fiscal 1995, the Trust acquired two properties
totalling 319,000 square feet of leasable space at an aggregate
purchase price of $26.8 million, and sold four industrial
properties totalling 626,000 square feet of leasable space for
net proceeds of $12.8 million. In addition, the Trust spent $2.9
million for leasing costs and capital improvements to properties
it already owns. Substantially all such capital improvements
were incurred in connection with the Trust's office and retail
leasing activities. The Trust also leased 167,000 square feet of
gross leasable space, compared to 145,000 square feet in the
prior year. The square footage leased in fiscal 1995 comprised
7% of the total gross leasable space of the Trust's retail and
office building properties.
In January 1996, the Trust sold a retail property located in
Manassas, Virginia for a sale price of $7.1 million, realizing
capital gains on the sale of $6.2 million. The property was net
leased to a single tenant.
The Trust intends to continue to invest substantially all of
its assets in income producing real estate, with a primary
emphasis on shopping centers, although the Trust will retain the
flexibility to invest in other types of real property. While the
Trust is not limited to any geographical location, the Trust's
current strategy is to invest in properties located in the
Northeastern United States.
Competition
The real estate investment business is highly competitive.
The Trust competes for real estate investments with investors of
all types, including domestic and foreign corporations, financial
institutions, other real estate investment trusts and
individuals. In addition, the Trust's properties are subject to
local competitors from the surrounding areas. The Trust does not
consider its real estate business to be seasonal in nature.
The Trust's shopping centers compete for tenants with other
regional, community or neighborhood shopping centers in the
respective areas where Trust retail properties are located. The
Trust's office buildings compete for tenants principally with
office buildings throughout the respective areas in which they
are located. In most areas where the Trust's office buildings
are located, competition for tenants is intense. Leasing space
to prospective tenants is generally determined on the basis of,
among other things, rental rates, location, physical quality of
the property and availability of space.
Since the Trust's industrial properties are all net leased
under long-term lease arrangements which are not due to expire in
the near future, the Trust does not currently face any
competitive pressures with respect to such properties.
Property Management
The Trust actively manages and supervises the operations and
leasing at eight of its retail property and two office locations.
Seven of the Trust's properties are net leased to single tenants
under long-term lease arrangements, in which case, management is
provided by the tenants. The Trust's four remaining properties
are managed by independent property management firms retained by
the Trust. The Trust closely supervises the property management
firms it engages to manage its properties.
Employees
The Trust has 16 employees, eight of whom oversee the
management of the Trust's real estate portfolio, or analyze
potential acquisition properties and determine which properties,
if any, to sell. The Trust's remaining employees serve in
various professional, executive and administrative capacities.
Item II. Properties.
Retail Properties
The following table sets forth information concerning each retail
property in which the Trust owned an equity interest at October 31, 1995.
All retail properties are 100% owned in fee by the Trust.
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
Gross
Leasable
Year Year Square Number
Location Completed Acquired Feet Acres Tenants Leased Principal Tenant
Meriden, Connecticut 1989 1993 300,000 29.2 21 96% Bradlee's, ShopRite Supermarket
Springfield, Massachusetts 1970 1970 293,000 26.0 17 95% Great Atlantic & Pacific Tea Co.
Clearwater, Florida 1983 1985 231,000 21.5 45 90% Albertson's Supermarket
Danbury, Connecticut 1989 1995 193,000 19.3 25 100% Barnes & Noble
Carmel, New York 1983 1995 126,000 19.0 12 96% ShopRite Supermarket
Manassas, Virginia* 1971 1972 106,000 14.1 1 100% The Hecht Company
Newington, New Hampshire 1975 1979 102,000 14.3 10 100% Sears Roebuck
Wayne, New Jersey 1959 1992 102,000 9.0 40 93% Great Atlantic & Pacific Tea Co.
Mesa, Arizona 1971 1971 92,000 7.6 1 100% Mervyn's
Tempe, Arizona 1970 1970 86,000 8.6 1 100% Mervyn's
Farmingdale, New York 1981 1993 70,000 5.6 10 91% King Kullen Supermarket
Somers, New York 1989 1992 19,000 4.9 12 100% Putnam County Savings Bank
* Sold on 1/4/96
Office Properties
The following table sets forth information concerning each office property in which
the Trust owned an equity interest at October 31, 1995. Except as otherwise noted, office
properties are 100% owned in fee by the Trust.
Rentable
Year Year Square Number
Location Completed Acquired Feet Acres Tenants Leased Principal Tenant
Southfield, Michigan 1973 1983 183,000 7.8 4 100% Giffels Associates
Denver, Colorado 1983 1983 122,000 9.1 7 89% Hartford Insurance Company
Houston, Texas 1972 1975 96,000 3.1 36 93% Houston Title Company
Greenwich, Connecticut 1983 1993 10,000 .2 3 100% HRE Properties
Greenwich, Connecticut 1983 1994 9,700 .2 4 100% Prescott Investors, Inc.
Distribution and Service Properties
The following table sets forth information concerning each distribution and service
property in which the Trust owned an equity interest at October 31, 1995. Distribution
and service properties are 100% owned in fee by the Trust.
Rentable
Year Year Square Number
Location Completed Acquired Feet Acres Tenants Leased Tenant
Albany, Georgia 1972 1972 476,000 51.3 1 100% Firestone
Dallas, Texas 1970 1970 253,000 14.5 1 100% Chrysler Corporation
St. Louis, Missouri 1970 1970 163,000 16.0 1 100% Chrysler Corporation
Syracuse, New York 1973 1973 29,000 10.0 1 100% Navistar International
</TABLE>
Item III. Legal Proceedings.
No legal proceedings are required to be reported under this Item.
Item IV. Submission of Matters to a Vote of Security Holders.
No matter was submitted to a vote of security holders during
the fourth quarter of the fiscal year ended October 31,1995.
Item Pursuant to Instruction 3 of Item 401 (b) of
Regulation S-K: Executive Officers of the Trust.
For information regarding Executive Officers of the Trust--See Item X.
PART II
Item V. Market for the Registrant's Common Equity and Related
Stockholder Matters.
(a) Price Range of Common Shares
The Common Shares of the Trust are traded on the New York
Stock Exchange under the symbol "HRE". The following table sets
forth the high and low closing sales prices for the Trust's
Common Shares during the fiscal years ended October 31, 1995 and
October 31, 1994, as reported on the New York Stock Exchange:
Fiscal Year Fiscal Year
Ended Ended
October 31, 1995 October 31, 1994
High Low High Low
Fourth Quarter $14-3/8 - $13-3/8 $15-1/2 - $13-7/8
Third Quarter 14-3/8 - 13-3/8 16-1/4 - 13-3/4
Second Quarter 13-7/8 - 13 16 - 13-1/2
First Quarter 14-1/4 - 13-1/4 15-3/8 - 14-1/8
(b) Approximate Number of Equity Security Holders
At December 31, 1995, there were 2,819 shareholders of
record of the Trust's Common Shares.
(c) Dividends Declared on Common Shares and Tax Status
The following table sets forth the dividends declared per
Common Share and tax status for Federal income tax purposes of
the dividends paid during the fiscal years ended October 31, 1995
and 1994:
Portion of Dividend Designated as:
Fiscal Year Ended Gross Dividend Income
October 31, 1995: Paid Per Share Distribution
Fourth Quarter $ .29 $ .29
Third Quarter $ .29 $ .29
Second Quarter $ .28 $ .28
First Quarter $ .28 $ .28
$1.14 $1.14
Portion of Dividend Designated as:
Fiscal Year Ended Gross Dividend Income Non-Taxable
October 31, 1994: Paid Per Share Distribution Distribution
Fourth Quarter $ .28 $ .14 $ .14
Third Quarter $ .28 $ .14 $ .14
Second Quarter $ .27 $ .14 $ .13
First Quarter $ .27 $ .13 $ .14
$1.10 $ .55 $ .55
The Trust made distributions to shareholders aggregating
$1.14 per Common Share during the fiscal year ended October 31,
1995. The Trust has paid quarterly dividends on its Common
Shares since it commenced operations as a real estate investment
trust in 1969.
Although the Trust intends to continue to declare quarterly
dividends on its Common Shares, no assurances can be made as to
the amounts of any future dividends. The declaration of any
future dividends by the Trust is within the discretion of the
Board of Trustees, and will be dependent upon, among other
things, the earnings, financial condition and capital
requirements of the Trust, as well as any other factors deemed
relevant by the Board of Trustees. Two principal factors in
determining the amounts of dividends are (i) the requirement of
the Code that a real estate investment trust distribute to
shareholders at least 95% of its real estate investment trust
taxable income, and (ii) the amount of the Trust's funds from
operations.
The Trust has a Dividend Reinvestment and Share Purchase
Plan which allows shareholders to acquire additional shares by
automatically reinvesting dividends. Shares are acquired
pursuant to the Plan at a price equal to the higher of 95% of the
market price of such shares on the dividend payment date or 100%
of the average of the daily high and low sales prices for the
five trading days ending on the day of purchase without payment
of any brokerage commission or service charge. Approximately 14%
of the Trust's eligible shareholders currently participate in the Plan.
Item VI.Selected Financial Data.
(In thousands, except per share data)
Year Ended October 31, 1995 1994 1993 1992 1991
Total Assets $149,099 $142,559 $119,330 $137,855 $130,727
Mortgage Notes and Other
Long-term Obligations $ 57,212 $ 46,386 $ 24,227 $ 31,226 $ 20,534
Revenues $ 22,853 $ 18,969 $ 16,162 $ 16,942 $ 17,136
Operating Income (Loss) $ (3,703) $ 1,262 $(7,293) $ 1,588 $ 892
Gains on Sales of
Properties $ 7,567 $ 82 $ 2,330 $ -- $ 2,205
Net Income (Loss) $ 3,864 $ 1,344 $(4,963) $ 1,588 $ 3,097
Funds from Operations* $ 8,976 $ 7,950 $ 7,036 $ 6,902 $ 7,841
Per Share Data:
Net Income (Loss) $ .72 $ .26 $(.94) $.30 $.58
Cash Dividends $1.14 $1.10 $1.08 $1.16 $1.40
*Defined as net income (computed in accordance with
generally accepted accounting principles), excluding gains
(or losses) from debt restructuring and sales of properties,
plus depreciation, amortization, and write-downs in carrying
values of investments, and after adjustments for
unconsolidated joint ventures.
ITEM VII. MANAGEMENT'S DISCUSSION ADN ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
The Trust's liquidity and capital resources include its cash
and cash equivalents, funds available from bank borrowings
and long-term mortgage debt and sales of real estate
investments. The Trust meets its liquidity requirements
primarily by generating cash from the operations of its
properties and collection of principal and interest on its
mortgage notes receivable. Payments of expenses related to
property operations, capital improvement programs, debt
service, and dividend requirements place demands on the
Trust's liquidity.
The Trust believes that the financial resources currently
available to it are sufficient to meet all of its known
obligations and commitments and to make additional real
estate investments when appropriate opportunities arise. At
October 31, 1995, the Trust had cash and cash equivalents of
$7.1 million compared to $8.7 million in 1994 and $7.1
million in 1993. The Trust also has $15 million in
unsecured revolving lines of credit with two major
commercial banks, of which $9.2 million is available at
October 31, 1995. The credit lines are available to finance
the acquisition, management or development of commercial
real estate and for working capital purposes. The revolving
credit lines expire at various periods in 1996 and
outstanding borrowings, if any, may be repaid from proceeds
of debt financings or sales of properties. The Trust may
also request that the time for repayment be extended by the
banks. It is the Trust's intent to renew these credit lines
as they expire in 1996. Long-term debt consists of mortgage
notes payable totalling $57.2 million, of which $765,000 in
principal payments are due in fiscal 1996. The mortgage
loans bear interest at fixed rates that range from 7.5% to
9.75%.
Since 1992, the Trust has selectively sold or disposed of
properties which the Trust determined no longer fit into its
strategic plan and employed the proceeds of sales, available
cash and long-term mortgage debt to acquire nearly $74
million of properties during this same period. In fiscal
1995, the Board of Trustees expanded and refined the
strategic objectives of the Trust to refocus the real estate
portfolio into one of self-managed retail properties located
in the Northeast and authorized a plan to sell the non-core
properties of the Trust in the normal course of business
over the next several years. The Trust believes that
economic conditions in the real estate markets where the
Trust's non-core properties are located have improved and
that opportunities to sell those properties over the next
several years have also improved. At October 31, 1995, the
non-core properties total eleven properties, having an
aggregate net book value of $46,212,000 and comprise all of
the Trust's office (with the exception of the Trust's
headquarters), distribution and service facilities, and
certain retail properties located outside of the Northeast
region of the United States. As a result of this change in
investment strategy, the Trust recorded a non-cash charge of
$7,000,000 in fiscal 1995, to writedown the carrying value
of two of the non-core properties to their estimated net
realizable values. The Trust expects that the ultimate
sales of the non-core properties over the next several years
will result in net gains to the Trust. During fiscal 1995,
the Trust sold four of its distribution properties for an
aggregate sales price of $12.8 million and realized gains on
the sales of the properties of $7,567,000. Subsequent to
October 31, 1995, the Trust sold its Hecht's department
store property for approximately $7.1 million. The Trust
has also commenced negotiations to sell its office property
in Houston, Texas. These sale transactions are expected to
close in fiscal 1996 and the proceeds from such sales, when
consummated, may be used to make additional real estate
investments, reduce outstanding mortgage indebtedness or
meet dividend distribution requirements.
The Trust expects to make additional real estate investments
periodically. The funds for such investments may come from
existing liquid assets, line of credit arrangements,
proceeds from property sales, financing of acquired or
existing properties or the sale of mortgage notes
receivable. In 1995, the Trust acquired ShopRite Plaza, a
126,000 square foot shopping center in Carmel, New York and
Danbury Square, a 193,000 square foot shopping center in
Danbury, Connecticut for an aggregate purchase price of
$26.8 million. The acquisitions were funded through a first
mortgage loan of $11.25 million and cash. The Trust also
invests in its existing properties and, during fiscal 1995,
spent approximately $3.0 million on its properties for
capital improvement and leasing costs. The Trust expects to
invest similar amounts in the next fiscal year.
Funds from Operations
Funds from Operations is defined as net income (computed in
accordance with generally accepted accounting principles),
excluding gains (or losses) from debt restructuring and
sales of properties, plus depreciation, amortization and
writedowns in carrying values of investments, and after
adjustments for unconsolidated joint ventures. The Trust
believes the level of Funds from Operations to be an
appropriate supplemental financial measure of its operating
performance. Funds from Operations does not represent cash
flows from operations as defined by generally accepted
accounting principles, is not indicative that cash flows are
adequate to fund all cash needs and is not considered to be
an alternative to net income as defined by generally accepted
accounting principles. The Trust considers
recoveries of investment in properties owned subject to
financing leases to be analogous to amortization for
purposes of calculating Funds from Operations. In fiscal
1995, Funds from Operations increased 13% to $8,976,000 from
$7,950,000 in the year ago period. The improvement is
primarily the result of the positive effect of the Trust's
new retail property investments in fiscal 1995 and late
1994.
Results of Operations
Fiscal 1995 vs. Fiscal 1994
Revenues
Total revenues increased 20.5% to $22,853,000 in fiscal 1995
compared to $18,969,000 in fiscal 1994 and $16,162,000 in
1993. Rental income in fiscal 1995, including the income
portion of rentals received in respect of direct finance
leases, comprised 93% of total revenues (94% in fiscal
1994). Rental income from retail properties increased 25.9%
to $14.5 million from $11.5 million in fiscal 1994. Most of
the increase was attributable to two retail properties
acquired during fiscal 1995 which increased rental income by
$2.1 million in fiscal 1995. The Trust's retail property
leasing levels rose to 96% at October 31, 1995, from 90%
last year. During the year, the Trust leased or renewed
153,400 square feet of retail space (9% of the Trust's gross
retail leasable space). Gross rents from office property
investments increased nearly 10% to $5.4 million in fiscal
1995 compared to $4.9 million in fiscal 1994 from higher
occupancy and rent levels in the Trust's office portfolio.
Other income in fiscal 1995 includes $600,000 of non-
recurring contract extension and other fees earned in
connection with the sale of the Trust's Hecht's department
store property.
The outlook for the retail industry is bearish with many
retailers reporting sluggish sales, intense competition for
consumer dollars and lower profit margins. In fiscal 1995,
three discount retailers occupying space at three of the
Trust's retail properties filed for bankruptcy protection.
The Trust has reviewed each situation and has developed
responses to assist in containing any short-term losses from
these bankruptcies. In one instance, the lease is
guaranteed by a credit worthy guarantor and in another, the
Trust purchased the property fully anticipating a vacancy
resulting from the tenant's bankruptcy. The third tenant
has historically reported good store sales and currently
pays a modest rent. While the Trust cannot predict the
ultimate outcomes, it is optimistic and will monitor events
in fiscal 1996.
Expenses
Total expenses were $26,556,000 in fiscal 1995, compared to
$17,707,000 in fiscal 1994. Included in expenses in fiscal
1995 and 1994 were write-downs in the carrying values of
investments of $7,000,000 and $1,086,000 respectively. (See
discussion below and under Liquidity and Capital Resources.)
Property expenses increased 7% to $7,691,000 in fiscal 1995,
from $7,185,000 a year ago. The increase in property
expenses is primarily the result of recently acquired
properties. The level of property expenses in 1995 for
properties owned during both 1995 and 1994 decreased by 2%.
Interest expense rose by $1,506,000 in fiscal 1995 from the
addition of $30.7 million of new mortgage notes payable
obtained in fiscal 1995 and late 1994. The mortgage notes
have fixed interest rates ranging from 7.5% to 9.75%.
Additionally, interest expense on credit line borrowings,
rose due to increases in the prime rate and LIBOR, during the period.
General and administrative expenses increased in fiscal 1995
due to, among other things, certain non-recurring costs and
expenses related to the relocation of the Trust to its new
headquarters.
Depreciation and amortization increased to $4,804,000 in
fiscal 1995 from $4,075,000 in fiscal 1994 from the addition
of three properties acquired at an aggregate cost of $52.6
million in fiscal 1995 and 1994 and capital expenditures for
tenant improvements and deferred charges.
Fiscal 1994 vs. Fiscal 1993
Revenues
Total revenues increased 17% to $18,969,000 in fiscal 1994
compared to $16,162,000 in 1993 and $16,942,000 in 1992.
Rents from retail properties increased 53% to $11.5 million
from $7.5 million in fiscal 1993. Retail property acquired
in fiscal 1994 and late 1993 produced most of the additional
rents of $3.9 million in fiscal 1994. Gross rents from
office property investments declined by 20% to $4.9 million
in fiscal 1994 compared to $6.1 million in 1993, reflecting
the disposition in fiscal 1993 of the Trust's former office
building investment in Portland, Oregon and lower occupancy
during the year at the Trust's Denver, Colorado office
building. By year end, the Trust had signed leases
totalling 62,000 square feet of leasable space at the Denver
property.
Expenses
Total expenses were $17,707,000 in fiscal 1994, compared to
$23,455,000 in fiscal 1993. Included in expenses in fiscal
1994 and 1993 were write-downs in the carrying values of
investments of $1,086,000 and $8,285,000, respectively. In
fiscal 1994, the Trust determined that the long term
economic prospects for an office building collateralized by
a participating mortgage note receivable held by the Trust
in the outstanding principal amount of $4,836,000 had
declined. As a result, the Trust decided to offer the
mortgage note for sale. In this connection, the Trust
recorded a charge in fiscal 1994 of $1,086,000 to reflect
the mortgage note at its net realizable value. In December
1994, the mortgage note was sold for net proceeds of
$3,750,000. Property expenses increased 14% to $7,185,000
in fiscal 1994 from $6,296,000 in 1993. Included in 1994
property expenses were $1,231,000 of expenses attributable
to properties acquired during the year. 1993's amounts
include $548,000 for property expenses of an office property
located in Portland, Oregon that was disposed of in that
year. Interest expense increased by $1,281,000 in fiscal
1994 from the addition of three mortgage notes payable
aggregating $22.5 million. The mortgage notes bear interest
at annual rates ranging from 7.5% to 9.75%. In fiscal
1993, the Trust satisfied in foreclosure a 10 3/4% mortgage
loan with an outstanding principal balance of $13.5 million.
General and administrative expenses decreased in fiscal 1994
as a result of the Trust's decision to redeploy certain of
its available staff resources from administrative and asset
management functions to direct property management
activities at certain of its retail properties. The
properties were managed previously by third-party management
firms under fee arrangements. The decrease in consulting
fee expense resulted from the termination in fiscal 1993 of
a consulting arrangement with a former trustee.
Item VIII.
Financial Statements and Supplementary Data.
The consolidated financial statements required by this Item,
together with the report of the Trust's independent public
accountants thereon and the supplementary financial information
required by this Item are included under Item 14 of this Annual Report.
Item IX. Changes in and Disagreements With Accountants
on Accounting and Financial Disclosure.
No information is required to be reported under this Item.
PART III
Item X.Directors and Executive Officers of the Registrant.
The Trust has filed with the Securities and Exchange
Commission its definitive Proxy Statement for its Annual Meeting
of Shareholders to be held on March 13, 1996. The additional
information required by this Item is included under the caption
"Election of Trustees" of such Proxy Statement and is
incorporated herein by reference.
Executive Officers of the Registrant.
The following sets forth certain information regarding the
executive officers of the Trust:
Name Age Offices Held
Charles J. Urstadt 67 Chairman; President and Chief
Executive Officer (since
September 1989)
James R. Moore 47 Senior Vice President and
Chief Financial Officer (since
September 1989); Secretary
(since April 1987) and
Treasurer (since December
1987); Vice President-Finance
and Administration (April 1987
to September 1989); prior to
April 1987, Senior Manager,
Ernst & Young
Raymond P. Argila 47 Senior Vice President and
Chief Legal Officer (since
June 1990); formerly Senior
Counsel, Cushman & Wakefield,
Inc., September 1987 to May
1990 and associated with
Finley, Kumble, Wagner, Heine,
Underberg, Manley, Myerson &
Casey from March to June 1987;
Vice President and Chief Legal
Officer, Pearce, Urstadt,
Mayer & Greer Realty Corp.
from January 1984 to March
1987
Willing L. Biddle 34 Senior Vice President -
Management (since June,
1995); Vice President - Retail
(June, 1994 to June, 1995);
Vice President - Asset
Management (April 1993 to
1994); Vice President, Levites
Realty Management Corp (1989
to 1993); prior to 1989,
Second Vice President, Chase
Manhattan Bank
Officers of the Trust are elected annually by the Trustees.
Mr. Urstadt has been the Chairman of the Trustees since
1986, and a Trustee since 1975. Mr. Urstadt also serves as the
President of Urstadt Property Company, Inc. (formerly Pearce,
Urstadt, Mayer & Greer Inc.) and has served in such capacity for
more than five years.
Item XI. Executive Compensation.
The Trust has filed with the Securities and Exchange
Commission its definitive Proxy Statement for its Annual Meeting
of Shareholders to be held on March 13, 1996. The information
required by this Item is included under the caption "Compensation
and Transactions with Management and Others" of such Proxy
Statement and is incorporated herein by reference.
Item XII. Security Ownership of Certain
Beneficial Owners and Management.
The Trust has filed with the Securities and Exchange
Commission its definitive Proxy Statement for its Annual Meeting
of Shareholders to be held on March 13, 1996. The information
required by this Item is included under the caption "Security
Ownership of Certain Beneficial Owners and Management" of such
Proxy Statement and is incorporated herein by reference.
Item XIII. Certain Relationships and Related Transactions.
The Trust has filed with the Securities and Exchange
Commission its definitive Proxy Statement for its Annual Meeting
of Shareholders to be held on March 13, 1996. The information
required by this Item is included under the caption "Compensation
and Transactions with Management and Others" of such Proxy
Statement and is incorporated herein by reference.
PART IV
Item XIV. Exhibits, Financial Statement
Schedules and Reports on Form 8-K.
A. Financial Statements and Financial Statement Schedules
1. Financial Statements --
The consolidated financial statements listed in
the accompanying index to financial statements on
Page 18 are filed as part of this Annual Report.
2. Financial Statement Schedules --
The financial statement schedules required by this
Item are filed with this report and are listed in
the accompanying index to financial statements on
Page 18. All other financial statement schedules
are inapplicable.
B. Reports on Form 8-K
The Registrant filed with the Commission a Current
Report on Form 8-K dated August 11, 1995. Such report
referred under Item 2 therein to the acquisition of
real property by the Registrant.
C. Exhibits.
Listed below are all Exhibits filed as part of this
report. Certain Exhibits are incorporated by reference
from documents previously filed by the Trust with the
Securities and Exchange Commission pursuant to Rule
12b-32 under the Securities Exchange Act of 1934, as
amended.
Exhibit
(3) Articles of Incorporation and By-laws.
3.1 Fourth Amended and Restated Declaration of Trust of the
Trust, as amended, to date. (incorporated herein by
reference to Exhibit 3.1 of the Registrant's Quarterly
Report on Form 10-Q for the quarter ended April 30,1995.)
3.2 By-laws of the Trust, as amended (incorporated by
reference to Exhibit 4.2 of the Registrant's
Registration Statement on Form S-8 (No. 33-41408)).
(4) Instruments Defining the Rights of
Security Holders, Including Indentures:
4.1 Common Shares: See Exhibit 3.1 hereto.
4.2 Preferred Shares: See Exhibit 3.1 hereto.
4.3 Preferred Share Purchase Rights: See Exhibits 3.1 and
10.3 hereto.
(10) Material Contracts.
10.1 Form of Indemnification Agreement entered into
between the Registrant and each of its Trustees and
for future use with Trustees and officers of the
Trust (incorporated herein by reference to Exhibit
10.1 of the Registrant's Annual Report on Form 10-K
for the year ended October 31, 1989).*
10.2 Amended and Restated Change of Control Agreement
between the Registrant and James R. Moore dated
November 15, 1990 (incorporated herein by reference
to Exhibit 10.3 of the Registrant's Annual Report
on Form 10-K for the year ended October 31, 1990).*
10.3 Rights Agreement between the Trust and The First
National Bank of Boston, as Rights Agent, dated as
of October 28, 1988 (incorporated herein by
reference to Exhibit 1 of the Registrant's Current
Report on Form 8-K dated October 28, 1988).
10.4 Change of Control Agreement dated as of June 12,
1990 between the Registrant and Raymond P. Argila
(incorporated herein by reference to Exhibit 10.7
of the Registrant's Annual Report on Form 10-K for
the year ended October 31, 1990).*
10.4.1 Agreement dated December 19, 1991 between the
Registrant and Raymond P. Argila amending the
Change of Control Agreement dated as of June 12,
1990 between the Registrant and Raymond P. Argila
(incorporated herein by reference to Exhibit 10.6.1
of the Registrant's Annual Report on Form 10-K for
the year ended October 31, 1991).*
10.5 Change of Control Agreement dated as of December
20, 1990 between the Registrant and Charles J.
Urstadt (incorporated herein by reference to
Exhibit 10.8 of the Registrant's Annual Report on
Form 10-K for the year ended October 31, 1990).*
10.6 Amended and Restated HRE Properties Stock Option
Plan (incorporated herein by reference to Exhibit
10.8 of the Registrant's Annual Report on Form 10-K
for the year ended October 31, 1991 and Exhibit
10.6.1 of the Registrant's Annual Report on Form
10-K for the year ended October 31, 1994).*
10.7 Change of Control Agreement dated June 9, 1993
between the Registrant and Willing L. Biddle. *
(21) Subsidiaries.
21.1 List of Trust's subsidiaries (incorporated by
reference to Exhibit 22.1 of the Registrant's
Annual Report on Form 10-K for the year ended
October 31, 1988).
(23) Consents of Experts and Counsel.
23.1 The consent of Arthur Andersen LLP to the
incorporation by reference of their reports
included or incorporated by reference herein and in
the Registrant's Registration Statements on Form S-
3 (No.33-57119), Form S-8 (No.2-93146) and Form S-8
(No. 33-41408) is filed herewith as part of this
report.
(27) Financial Data Schedule.
27.1 Financial Data Schedule
*Management contract, compensatory plan or arrangement required
to be filed as an exhibit to this Annual Report on Form 10-K
pursuant to Item 14(c).
HRE PROPERTIES
Item 14a. INDEX TO FINANCIAL STATEMENTS AND
FINANCIAL STATEMENT SCHEDULES
Page
Consolidated Balance Sheets at October 31, 1995 and 1994 19
Consolidated Statements of Income for each of the
three years ended October 31, 1995 20
Consolidated Statements of Cash Flows for each of the
three years ended October 31, 1995 21
Consolidated Statements of Shareholders' Equity
for each of the three years ended October 31, 1995 22
Notes to Consolidated Financial Statements 23-31
Report of Independent Public Accountants 32
Schedule
II Amounts Receivable from Related Parties and
Underwriters, Promoters and Employees
Other Than Related Parties - For the
three years ended October 31, 1995 33
IX Short-Term Borrowings - For the
three years ended October 31, 1995 34
X Supplementary Income Statement Information -
For the three years ended October 31, 1995 35
XI Real Estate and Accumulated Depreciation -
October 31, 1995 36-40
XII Mortgage Loans on Real Estate - October 31,
1995 41-42
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
October 31,
ASSETS 1995 1994
Real Estate Investments:
Properties owned at cost, net of accumulated depreciation
and recoveries $ 85,966 $114,197
Properties available for sale, at cost, net of accumulated
depreciation and recoveries 46,212 6,434
Mortgage notes receivable 3,937 7,763
136,115 128,394
Cash and cash equivalents 7,097 8,738
Interest and rent receivable 2,691 2,343
Deferred charges, net of accumulated amortization 1,913 2,108
Other assets 1,283 976
$149,099 $142,559
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Bank loan $ 2,500 $ 5,000
Mortgage notes payable 57,212 46,386
Accounts payable and accrued expenses 1,014 1,024
Deferred trustees' fees 436 521
Other liabilities 1,355 1,147
62,517 54,078
Commitments -- Note 10
Shareholders' Equity:
Preferred shares, without par value; 2,000,000 shares
authorized; none issued -- --
Common shares, without par value; unlimited shares
authorized; 5,545,574 and 5,520,044 issued in
1995 and 1994, respectively 123,844 123,507
Less 178,348 common shares held in treasury, at cost (2,861) (2,861)
Distributions in excess of accumulated net income (34,401) (32,165)
86,582 88,481
$149,099 $142,559
The accompanying notes to consolidated financial statements
are an integral part of these balance sheets.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
Year Ended October 31,
1995 1994 1993
Revenues:
Operating leases $20,003 $16,498 $13,763
Financing leases 1,165 1,392 1,520
Interest and other 1,685 1,079 1,122
Interest from and equity in losses of
unconsolidated joint ventures -- -- (243)
22,853 18,969 16,162
Operating Expenses:
Property expenses 7,691 7,185 6,296
Interest 5,281 3,775 2,494
Depreciation and amortization 4,804 4,075 4,363
General and administrative expenses 1,610 1,423 1,723
Trustees' fees and expenses 170 163 149
Consulting fee -- -- 145
Write-downs in carrying value of investments 7,000 1,086 8,285
26,556 17,707 23,455
Operating Income (Loss) (3,703) 1,262 (7,293)
Gains on Sales of Properties 7,567 82 2,330
Net Income (Loss) $ 3,864 $ 1,344 $(4,963)
Net Income (Loss) Per Common Share $ .72 $ .26 $(.94)
Weighted Average Number of Common
Shares Outstanding 5,349 5,330 5,296
The accompanying notes to consolidated financial statements
are an integral part of these statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<S> <C> <C> <C>
Year Ended October 31,
1995 1994 1993
Operating Activities:
Net income (loss) $ 3,864 $ 1,344 $(4,963)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization 4,924 4,151 4,448
Recovery of investment in properties owned
subject to financing leases 1,355 1,471 1,342
Equity in losses of unconsolidated joint venture -- -- 269
Minority interests in results of consolidated
joint ventures -- (20) (15)
Gains on sales of properties (7,567) (82) (2,330)
Write-downs in carrying value of investments 7,000 1,086 8,285
(Increase) in interest and rent receivable (348) (1,039) (286)
Increase (decrease) in accounts payable and accrued
expenses (95) 97 (463)
(Increase) decrease in other assets and other liabilities,
net (98) (619) 253
Net Cash Provided by Operating Activities 9,035 6,389 6,540
Investing Activities:
Acquisitions of properties owned (26,809) (25,816) (6,197)
Improvements to properties owned and deferred charges (2,959) (1,764) (1,521)
Investment in unconsolidated joint venture -- -- (100)
Proceeds from sale of mortgage note receivable 3,750 -- --
Net proceeds from sale of investment in unconsolidated
joint venture -- 250 --
Net proceeds from sales of properties 12,822 454 3,231
Contract deposit received -- 500 --
Payments received on mortgage notes receivable 76 68 61
Miscellaneous (119) (4) 66
Net Cash Used in Investing Activities (13,239) (26,312) (4,460)
Financing Activities:
Proceeds from bank loan -- 5,000 --
Proceeds from mortgage notes 11,250 22,500 6,600
Dividends paid (6,100) (5,861) (5,718)
Proceeds from sales of common shares 337 302 459
Payments on mortgage notes and bank loan (2,924) (341) (818)
Net Cash Provided by Financing Activities 2,563 21,600 523
Net Increase (Decrease) In Cash and Cash Equivalents (1,641) 1,677 2,603
Cash and Cash Equivalents at Beginning of Year 8,738 7,061 4,458
Cash and Cash Equivalents at End of Year $ 7,097 $ 8,738 $ 7,061
The accompanying notes to consolidated financial statements
are an integral part of these statements.
</TABLE>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(In thousands, except shares and per share data)
<TABLE>
<S> <C> <C> <C> <C> <C>
Common Shares
(Distributions
Treasury In Excess of
Outstanding Issued Shares, Accumulated
Number Amount at Cost Net Income) Total
Balances - October 31, 1992 5,296,109 $122,590 $(2,705) $(16,967) $102,918
Net (loss) - - - (4,963) (4,963)
Cash dividends paid ($1.08 per share) - - - (5,718) (5,718)
Sale of additional common shares under
dividend reinvestment plan 32,247 459 - - 459
Common shares acquired in cancellation
stock option loan (8,250) 156 (156) - -
Balances - October 31, 1993 5,320,106 123,205 (2,861) (27,648) 92,696
Net income - - - 1,344 1,344
Cash dividends paid ($1.10 per share) - - - (5,861) (5,861)
Sale of additional common shares under
dividend reinvestment plan 18,048 261 - - 261
Common shares issued upon exercise of
stock options 3,542 41 - - 41
Balances - October 31, 1994 5,341,696 123,507 (2,861) (32,165) 88,481
Net income - - - 3,864 3,864
Cash dividends paid ($1.14 per share) - - - (6,100) (6,100)
Sale of additional common shares under
dividend reinvestment plan 18,862 260 - - 260
Common shares issued upon
exercise of stock options 6,668 77 - - 77
Balances - October 31, 1995 5,367,226 $123,844 $(2,861) $(34,401) $86,582
The accompanying notes to consolidated financial statements are an
integral part of these statements.
</TABLE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts
of HRE Properties (the Trust), its wholly owned subsidiary,
and a joint venture in which the Trust has the ability to
control the affairs of the venture. All significant inter-
company transactions and balances have been eliminated in
consolidation.
Accounting for Leases
The Trust accounts for its leases of real property in accor-
dance with the provisions of Financial Accounting Standards
Statement No. 13, Accounting for Leases, as amended. This
Statement sets forth specific criteria for determining
whether a lease should be accounted for as an operating
lease or a direct financing lease. In general, the financing
lease method applies where property is under long-term lease
to a creditworthy tenant and the present value of the mini-
mum required lease payments at the inception of a lease is
at least 90% of the market value of the property leased.
Other leases are accounted for as operating leases.
Federal Income Taxes
The Trust believes it qualifies and intends to continue to
qualify as a real estate investment trust under the Internal
Revenue Code. The Trust has distributed all of its taxable
income for the fiscal years through 1995. Accordingly, no
provision has been made for Federal income taxes in the
accompanying consolidated financial statements.
Taxable income of the Trust prior to the dividends paid
deduction for the years ended October 31, 1995, 1994 and
1993 was approximately $3,600,000, $2,200,000 and $3,900,000, respectively.
The difference between net income for
financial reporting purposes and taxable income results
from, among other things, different methods of accounting
for leases and depreciable lives related to the properties
owned. During fiscal 1995 the Trust utilized $2,900,000 of
available capital loss carryovers and at October 31, 1995,
the Trust had available capital loss carryovers of approximately
$2,200,000 which expire in 1999.
Depreciation and Amortization
The Trust uses the straight-line method for depreciation and
amortization. Properties owned and properties available for
sale are depreciated over the estimated useful lives of the
properties, which range from 30 to 45 years. Furniture and
equipment are depreciated over their estimated useful lives,
which range from 3 to 20 years. Tenant improvements, deferred
leasing costs and leasehold improvements are amortized
over the life of the related leases. All other deferred
charges are amortized over the terms of the agreements
to which they relate.
Properties Available for Sale
A property is classified as available for sale upon determination
by the Trustees that the property is to be marketed
for sale in the normal course of business over the next
several years.
In March 1995, the Financial Accounting Standards Board
issued Statement No. 121 (the "Statement") on accounting for
the impairment of long-lived assets, certain identifiable
intangibles, and goodwill related to assets to be held and
used. The Statement also establishes accounting standards
for long-lived assets and certain identifiable intangibles
to be disposed of. The Trust is required and plans to adopt
the Statement on November 1, 1996. The Statement requires,
among other things, that assets to be disposed of be carried
at the lower of cost or fair value less costs to dispose and
that such assets would no longer be subject to depreciation.
Management has not determined the impact on the consolidated
financial statements resulting from the adoption of the
provisions of this Statement.
Capitalization
The Trust capitalizes all direct costs relating to the
acquisition of real estate investments and costs relating to
improvements to properties. The Trust also capitalizes all
direct costs relating to its successful leasing activities.
Income Recognition
Revenues from operating and finance leases include revenues
from properties owned and properties available for sale.
Rental income is generally recognized based on the terms of
leases entered into with tenants. Rental income from leases
with scheduled rent increases is recognized on a straight-
line basis over the lease term. Additional rents which are
provided for increases, are recognized as income when earned
and their amounts can be reasonably estimated. Interest
income is recognized as it is earned. Gains on sales of
properties are recorded when the criteria for recognizing
such gains under generally accepted accounting principles
have been met.
Statements of Cash Flows
The Trust considers short-term investments with original
maturities of 90 days or less to be cash equivalents.
Allowance For Possible Investment Losses
The Trust's real estate investments are recorded at the
lower of depreciated historical cost or estimated net realizable
values. The Trust periodically reviews each of its
investments for declines in net realizable values, to
amounts below recorded balances, based on its present investment
strategies. Future changes in such investment
strategies and other circumstances may affect estimates of
net realizable values and therefore the carrying amount of
investments.
Net Income Per Common Share
Computations of net income per common share are based on the
weighted average number of common shares outstanding during
the respective periods. The additional shares issuable upon
exercise of stock options (see Note 8) have not been included
in the computations since their effect is immaterial.
Reclassifications
Certain 1994 and 1993 amounts have been reclassified to
conform to the 1995 presentation.
Concentration of Credit Risk
Annual rental payments comprising more than 10% of the
Trust's gross revenues received from a single tenant in the
automotive industry totalled $2,450,000 in 1994 and 1993.
Payments received in fiscal 1995 from this tenant were less
than 10% of the Trust's revenues.
(2) REAL ESTATE INVESTMENTS
The Trust's investments in real estate were composed of the
following at October 31, 1995 and 1994
(in thousands):
Properties Mortgage
Properties Available Notes 1995 1994
Owned for Sale Receivable Totals Totals
Retail $ 84,122 $ 17,271 $ 3,937 $ 105,330 $ 84,832
Office 1,540 19,405 - 20,945 26,697
Distribution and Service - 8,736 - 8,736 15,361
Undeveloped Land 304 800 - 1,104 1,504
$ 85,966 $ 46,212 $ 3,937 $ 136,115 $128,394
The Trust's investments at October 31, 1995, consisted of equity
interests in 21 properties which are located in various regions
throughout the United States and mortgage notes. The following is a
summary of the geographic locations of the Trust's investments at
October 31, 1995 and 1994 (in thousands):
1995 1994
Northeast $89,211 $ 66,963
Southeast 15,153 22,464
Midwest 10,910 13,124
Rocky Mountain 8,916 11,887
Southwest 9,909 10,678
Pacific Coast and Northwest 2,016 3,278
$136,115 $128,394
(3) PROPERTIES OWNED
Space at properties owned by the Trust is generally leased to various
individual tenants under short and intermediate term leases which are
accounted for as operating leases. Certain properties have been
leased on a long-term basis to a single tenant; these leases are
generally accounted for as direct financing leases.
At October 31, 1995 and 1994, properties owned consisted of the
following (in thousands):
1995 1994
Properties owned subject to:
Operating leases $ 85,966 $105,013
Direct financing leases - 9,184
$ 85,966 $114,197
The components of properties owned subject to operating leases were
as follows (in thousands):
1995 1994
Land $ 17,068 $ 20,763
Buildings and improvements 79,165 109,273
96,233 130,036
Accumulated depreciation (10,267) (25,023)
$ 85,966 $ 105,013
Minimum rental payments on noncancellable operating leases become due
as follows: 1996 - $18,118,000; 1997 - $17,028,000; 1998 - $15,709,000;
1999 - $13,983,000; 2000 - $12,174,000; and thereafter - $73,767,000.
In addition to minimum rental payments, certain tenants are required
to pay additional rental amounts based on increases in property
operating expenses and/or their share of the costs of maintaining
common areas. Certain of the Trust's leases provide for the payment
of additional rent based on a percentage of the tenant's revenues.
Such additional rents are included in rental income and aggregated
approximately $483,000, $515,000, and $559,000 in 1995, 1994 and
1993, respectively.
In fiscal 1995, the Trust acquired two retail properties for a total
cost of $26.8 million. One acquisition, was financed from cash and a
first mortgage note of $11.25 million. Proceeds from tax-deferred
exchanges of $7,350,000 were reinvested to acquire the second property.
(4) PROPERTIES AVAILABLE FOR SALE
In fiscal 1995, the Board of Trustees authorized a plan to sell all
of the non-core properties of the Trust over the next several years.
The non-core properties consist of all of the Trust's distribution
and service properties, the Trust's office properties (with the
exception of its headquarters), and certain retail properties located
outside of the Northeast region of the United States. These properties,
having a net carrying amount of $46,212,000 at October 31,
1995, have been classified as Properties Available for Sale in the
accompanying consolidated financial statements. As a result of this
change in investment strategy, the Trust recorded a charge of $7,000,000
in the accompanying 1995 consolidated statement of income to
write-down the carrying value of the properties available for sale to
their respective estimated net realizable values.
At October 31, 1995 and 1994, properties available for sale consisted
of the following (in thousands):
1995 1994
Properties available for sale subject to:
Operating leases $ 38,104 $ 899
Direct financing leases 8,108 5,535
$ 46,212 $ 6,434
Operating Leases
The components of properties available for sale subject to operating
leases were as follows (in thousands):
1995 1994
Land $ 8,898 $ 284
Buildings and improvements 48,874 1,765
57,772 2,049
Accumulated Depreciation (19,668) (1,150)
$ 38,104 $ 899
Direct Financing Leases
The components of properties available for sale subject to direct
financing leases were as follows (in thousands):
1995 1994
Total remaining minimum lease payments to be received $ 7,431 $ 2,144
Assumed residual values of leased property 2,412 4,263
Unearned income (1,735) ( 872)
Investment in property subject to financing leases $ 8,108 $ 5,535
Original cost of property subject to financing leases $16,276 $10,766
Assumed residual values are based upon a depreciated cost concept
using estimated useful lives and thus do not contain an element of
appreciation which may result by reason of inflation or other factors.
Minimum lease payments receivable on direct financing leases become
due at a rate of $1,530,000 in 1996, $1,468,000 in 1997, $1,468,000
in 1998, $1,468,000 in 1999, $1,299,000 in 2000 and $198,000 thereafter.
(5) WRITE-DOWNS IN CARRYING VALUE OF INVESTMENTS
In fiscal 1995, in connection with the Trust's change in investment
strategy and plan to sell its non-core properties, the Trust recorded
a charge of $7,000,000 in fiscal 1995 to write-down the carrying
value of the properties available for sale to their respective
estimated net realizable values. (See Note 4)
The Trust held a participating mortgage in the principal amount of
$4,836,000. The participating mortgage note was collateralized by an
office property and entitled the Trust to a fixed rate of interest
plus a participation in increases in the property's income and market
value. In fiscal 1994,the Trust determined that the long-term
outlook for the property had declined due to, among other things,
significant tenant turnover. As a result of these circumstances, the
Trust changed its investment strategy with respect to this asset and
offered the mortgage loan for sale and, in December 1994, the mortgage
loan was sold for net proceeds of $3,750,000. As a result, the
Trust recorded a charge of $1,086,000 in fiscal 1994, to write down
the carrying value of the mortgage loan to its selling price, which
charge is reflected in "Write-down in carrying value of investments"
in the 1994 consolidated statement of income.
Prior to fiscal 1994, the Trust had a 92% joint venture interest in
an office building, which property was subject to a nonrecourse first
mortgage loan with an outstanding principal balance of $13,540,000.
During fiscal 1993, the joint venture elected not to make required
debt service payments in an attempt to renegotiate the mortgage loan
with the lender. Subsequently, the lender refused to renegotiate the
terms of the mortgage loan and foreclosed on the property. The Trust
wrote down the carrying amount in this property by $2,600,000 to its
estimated fair value which approximated the related mortgage note
payable balance at the time of foreclosure. This charge is included
in "Write-down in carrying value of investments" in the 1993 consolidated
statement of income. The foreclosure of the property and the
satisfaction of the mortgage note payable represented a noncash
financing activity and therefore was not included in the accompanying
1993 consolidated statement of cash flows.
The Trust also had interests in two unconsolidated joint ventures
which owned office buildings located in Santa Ana, California and
Charlotte, North Carolina, respectively. Both properties were
subject to nonrecourse first mortgage loans. The Trust accounted for
these joint venture investments on the equity method of accounting.
In fiscal 1993, the Trust determined that the additional funds
required to meet expected capital requirements and debt service
obligations of the Santa Ana joint venture were not justified by its
near-term prospects and, as a result, in fiscal 1993 changed its
investment strategy with respect to the joint venture and sold its
ownership interest to its joint venture partner for $250,000.
Accordingly, in fiscal 1993, the Trust recorded a charge in the 1993
consolidated statement of income of $4,885,000 to write down the
carrying value of the Trust's investment in the unconsolidated joint
venture to its net realizable value. The Trust also wrote down the
carrying value of an $800,000 second mortgage loan to the Charlotte
joint venture to zero. The loan became non-performing as to principal
and interest during fiscal 1993 as a result of lower tenancy at
the property and the joint venture's inability to meet the debt
service obligations of the first mortgage loan. Subsequent to fiscal
1993, the joint venture was liquidated following a foreclosure of the
property by the first mortgage lender to the property.
(6) MORTGAGE NOTES RECEIVABLE
The Trust's mortgage notes receivable consists of fixed rate mortgages.
The components of the mortgage notes receivable at October 31,
1995 and 1994 were as follows (in thousands):
1995 1994
Remaining principal balance $ 4,977 $ 9,946
less: Writedown of participating mortgage note receivable
(See Note 5) -- (1,086)
Unamortized discounts to reflect market interest rates at
time of acceptance of notes (1,040) (1,097)
$ 3,937 $ 7,763
At October 31, 1995, principal payments on mortgage notes receivable
become due as follows:
1996 - $144,000; 1997 - $158,000; 1998 - $172,000; 1999 - $189,000;
2000 - $206,000; thereafter - $ 4,108,000.
At October 31, 1995, the remaining principal balance was due from
three borrowers. The amount due from the largest individual borrower
at October 31, 1995 was $2,432,000.
The contractual interest rates on mortgage notes receivable range
from 9% to 14%, and the weighted average interest rate of all such
mortgages was 12% at October 31, 1995 and 1994.
(7) MORTGAGE NOTES PAYABLE AND BANK LINES OF CREDIT
Mortgage notes payable consisted of the following at October 31, 1995
and 1994 (in thousands):
<TABLE>
<S> <C> <C>
1995 1994
7 1/2% note with interest only due monthly, until
installmentsof principal and interest of $120,840 due monthly until
maturity in 1998. $ 15,000 $ 15,000
9 1/2% note with interest only due monthly; the principal is due at
maturity in 2000. 11,250 --
9 5/8% note with interest only due monthly; the principal is due at
maturity in 1997. 9,100 9,100
9 3/4% note with interest only due monthly; the principal is due at
maturity in 1997. 6,000 6,000
Variable rate note with principal installments of $16,419 plus
interest at prime minus 1/4% due monthly until maturity in 2000.
(See below). 5,606 5,803
9 3/4% note with installments of principal and interest of $39,143
due monthly until maturity in 2001. 4,464 4,497
7.56% note with principal installments of $12,500 plus interest due
monthly until maturity in 2001. 2,725 2,888
8 1/2% note with installments of principal and interest of $19,607 due
monthly until maturity in 1997. 2,483 2,506
8 1/4% note with installments of principal and interest of $4,731 due
monthly until maturity in 1998. 584 592
$57,212 $46,386
</TABLE>
Mortgage notes payable are collateralized by various real estate
investments having a net carrying value of $86 million as of October
31, 1995. All mortgage notes payable are nonrecourse except the
variable rate note for which the Trust has guaranteed the repayment
of $1.5 million of principal and all unpaid and accrued interest
thereon. In connection with the variable rate note, the Trust has
entered into an interest rate swap agreement in the original notional
amount of $6 million wherein the Trust has agreed to pay interest at
an annual rate of 7.55% on the notional amount in exchange for
interest at prime minus 1/4% on the notional amount. The notional
amount declines in relation to the principal amount of the debt.
This agreement which matures in 2000, effectively fixes the interest
rate at 7.55% for the term of the note.
Scheduled principal payments during the next five years are as
follows: 1996 - $765,000; 1997 - $18,326,000; 1998 - $15,235,000;
1999 - $394,000; 2000 - $6,994,000 and thereafter - $15,498,000.
At October 31, 1995, the Trust had $15 million in unsecured lines of
credit. The lines of credit expire at various dates in fiscal 1996
and bear interest at rates tied to the prime rate or LIBOR. A
condition for one of the credit lines in the amount of $5 million
requires the Trust to maintain a compensating balance of $525,000.
At October 31, 1995, the Trust had outstanding borrowings of $2,500,000
under this line of credit ($5,000,000 at October 31, 1994). The
second line of credit is in the amount of $10,000,000, of which $3.3
million has been reserved pursuant to an outstanding letter of
credit. There was no outstanding balance on this line of credit as
of October 31, 1995 or 1994. The effective interest rate on credit
line borrowings during the year ended 1995 and 1994 was 8.7% and
6.4%, respectively. The Trust pays fees of 1/4% per annum on the
unused portions of the line of credit commitments.
Interest paid for the years ended October 31, 1995, 1994 and 1993 was
$5,304,000, $3,668,000 and $2,502,000 respectively.
(8) STOCK OPTIONS AND SHAREHOLDER RIGHTS PLAN
At October 31, 1995, 453,665 shares of the Trust's authorized but
unissued stock were reserved for issuance to key employees of the
Trust and certain non-employee trustees under the Trust's stock
option plan. Options are granted at fair market value on the date of
the grant and are generally exercisable in installments over a
maximum period of four years from the date of grant. A summary of
stock options at October 31, 1995 and 1994 is as follows:
Number Option Price
of Shares Per Share
Outstanding at October 31,
1995 376,248 $11.38-$27.00
1994 331,082 $11.38-$27.00
Exercisable at October 31, 1995 232,123 $11.38-$27.00
No accounting recognition is given to stock options until they are
exercised, at which time the proceeds
are credited to shareholders' equity. During the years ended October
31, 1995 and 1994, options to purchase 6,668 common shares (3,542
common shares in 1994) were exercised.
Stock appreciation rights may be issued in tandem with the stock
options, in which case, either the option or the right can be exercised.
Such rights entitle the grantee to payment in cash or a
combination of common shares and cash equal to the increase in the
value of the shares covered by the option to which the stock appreciation
right is related. The plan limits the value of the stock
appreciation rights to 150% of the option price for the related
shares. The excess of the market price of the shares over the exercise
price of vested options is charged to expense. For the years
ended October 31, 1995, l994 and 1993, there were no amounts charged
to expense.
The Board of Trustees adopted a Preferred Share Purchase Rights Plan
in 1988. In this connection, the Board of Trustees declared a dividend
distribution of one preferred share purchase right for each
outstanding common share. The rights, which expire on November 13,
1998, are not currently exercisable. When they are exercisable, the
holder will be entitled to purchase from the Trust one one-hundredth
of a share of a newly-established Series A Participating Preferred
Stock at a price of $65 per one one-hundredth of a preferred share,
subject to certain adjustments. The rights will become exercisable 10
days after a person or group either acquires 20% ("acquiring person")
or more of the Trust's shares, or announces an offer the consummation
of which would result in such person or group owning 30% or more of
the shares. Following any such 20% acquisition, shareholders other
than the acquiring person will be entitled to use the rights to
purchase common shares of the Trust at 50% of market value.
If the Trust is involved in a merger or other business combination at
any time after the rights become exercisable, the rights will be
modified to entitle a holder other than the acquiring person to
purchase a number of shares of common stock of the acquiring company
having a market value of twice the exercise price of each right.
(9) SALES OF PROPERTIES
In fiscal 1995 the Trust sold four industrial properties resulting in
gains on sales of properties of $7,567,000.
In fiscal 1994, the Trust sold an industrial property resulting in a
gain on sale of property of $82,000.
In fiscal 1993, the Trust sold a retail property resulting in a gain
on sale of property of $2,330,000.
(10) COMMITMENT AND OTHER
The Trust has a remaining commitment to fund $3.3 million towards the
construction of a tenant's retail store at one of the Trust's properties.
The Trust has an outstanding letter of credit in the amount of
$3.3 million to secure its commitment.
A consulting fee was paid to a former trustee pursuant to an employment
and consulting agreement between the trustee and the Trust
which agreement expired in November 1993. Certain trustees have
elected to defer payment of fees earned as trustees until their
termination as a trustee or revocation of their election. Deferred
fees earn interest at rates set annually by the Board of Trustees,
currently 7.5% per annum.
(11) DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The following disclosures of estimated fair value were determined by
management using available market information and appropriate valuation
methodologies. Considerable judgement is necessary to interpret
market data and develop estimated fair value. Accordingly, the
estimates presented herein are not necessarily indicative of the
amounts the Trust could realize on disposition of the financial
instruments. The use of different market assumptions and/or estimation
methodologies may have a material effect on the estimated fair value amounts.
Cash and cash equivalents, rents receivable, interest receivable,
accounts payable and accrued expenses and other liabilities are
carried at amounts which reasonably approximate their fair values.
The estimated fair value of mortgage notes receivable collateralized
by real property is based on discounting the future cash flows at a
year-end risk adjusted lending rate that the Trust would utilize for
loans of similar risk and duration. At October 31, 1995, the estimated
aggregate fair value of the mortgage notes receivable is $4,100,000.
Mortgage notes payable with an aggregate carrying value of $57,212,000
have an estimated aggregate fair value of $59,400,000 at October
31, 1995. Estimated fair value is based on discounting the future
cash flows at a year-end risk adjusted lending rate currently available
to the Trust for issuance of debt with similar terms and remaining
maturities. The fair value of the Trust's interest rate swap
agreement is approximately $100,000 and is based on estimates provided
by the lender.
Although management is not aware of any factors that would significantly
affect the estimated fair value amounts, such amounts have not
been comprehensively revalued for purposes of these financial statements
since that date and current estimates of fair value may differ
significantly from the amounts presented herein.
(12) QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The unaudited quarterly results of operations for the years ended
October 31, 1995 and 1994 are as follows
(in thousands, except per share data):
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Year Ended October 31, 1995 Year Ended October 31, 1994
Quarter Ended Quarter Ended
Jan 31 Apr 30 July 31 Oct 31 Jan 31 Apr 30 July 31 Oct 31
Revenues $ 5,169 $ 5,606 $ 5,815 $ 6,263 $ 4,362 $ 4,885 $ 4,819 $4,903
Income (loss) before gains
on sales of properties (1) $ 575 $ 668 $(6,252) $ 1,306 $ 545 $ 571 $ 584 $(438)
Gains on sales of properties - 5,502 - 2,065 - 82 - -
Net Income (loss) $ 575 $ 6,170 $(6,252) $ 3,371 $ 545 $ 653 $ 584 $ (438)
Per share:
Net Income (loss) $ .11 $ 1.15 $ (1.17) $ .63 $ .10 $ .12$ .11 $ (.08)
(1) Quarter ended October 31, 1995 results include other income of $600,000
earned in connection with the contract for sale of one of the Trust's proper-
ties.
Quarter ended July 31, 1995 results include a charge of $7,000,000 to reflect
the carrying values of two properties available for sale at their net realiz-
able values.
Quarter ended October 31, 1994 results include a charge of $1,086,000 to
reflect the Trust's investment in a mortgage note receivable at its net
realizable value. The mortgage note was sold in fiscal 1995.
</TABLE>
(13) SUBSEQUENT EVENTS
In December 1995, the Trust repaid a 9-1/2% mortgage note payable in
the principal amount of $11,250,000, due in 2000, from proceeds of a
$6,000,000 mortgage note and $5,250,000 of borrowings from one of the
Trust's credit lines.
On January 4, 1996, the Trust sold a retail property resulting in a
gain on sale of property of approximately $6.2 million.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of HRE Properties:
We have audited the accompanying consolidated balance sheets of HRE
Properties (the "Trust"), a
Massachusetts voluntary association, and subsidiary as of October 31,
1995 and 1994, and the related consolidated statements of
income, cash flows and shareholders' equity for each of the three
years in the period ended October 31, 1995. These financial statements
are the responsibility of the Trust's management. Our responsibility
is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable
basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of HRE
Properties and subsidiary as of October 31, 1995 and 1994, and the
results of their operations and their cash flows for each of the
three years in the period ended October 31, 1995 in conformity with
generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedules listed in the accom-
panying index to financial statements are presented for purposes of complying
with the Securities and Exchange Commission's rules and are not part of the
basic financial statements.These schedules have been subjected to the auditing
procedures applied in the audits of the basic financial statements and, in
our opinion, fairly state in all material respects the financial data
required to be set forth therein in relation to the basic financial
statements taken as a whole.
ARTHUR ANDERSEN LLP
New York, New York
January 4, 1996
SCHEDULE II -- AMOUNTS RECEIVABLE FROM RELATED PARTIES AND UNDERWRITERS,
PROMOTERS, AND EMPLOYEES OTHER THAN RELATED PARTIES
HRE PROPERTIES
Three Years Ended October 31, 1995
(In thousands)
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------
Col.A Col.B Col.C Col.D Col.E
- ---------------------------------------------------------------------------------------------------------------------
Balance at
Balance at DEDUCTIONS End of Period
Beginning of Amounts Amounts Not
Name of Debtor Period Additions Collected Written off Current Current
- -----------------------------------------------------------------------------------------------------------------------
Year Ended October 31, 1993:
Stephen C. Hagen (a) $156 $0 $156 $0 $0 $0
Year Ended October 31, 1994: $0 $0 $0 $0 $0 $0
Year Ended October 31, 1995: $0 $0 $0 $0 $0 $0
</TABLE>
NOTE:
(a) The notes, as amended in 1990, were nonrecourse, due in December,
1992 with interest at the prime rate, and were secured by an aggregate
of 8,250 shares of the Trust's common shares, issued under the Trust's
stock option plan. In December 1992, pursuant to an arrangement with
Mr. Hagen, a former officer of the Trust, the notes were cancelled in
consideration for the transfer of such 8,250 common shares to the Trust.
HRE PROPERTIES
OCTOBER 31, 1995
SCHEDULE IX - SHORT TERM BORROWINGS
<TABLE>
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------
COL. A COL. B COL. C COL.D COL. E COL. F
- ------------------------------------------------------------------------------------------------------------------------
Maximum Average Weighted
Balance Weighted Amount Amount Average
Category of Aggregate at End of Average Outstanding Outstanding Interest Rate
Short Term Borrowings Period Interest Rate During Period During Period(2) During Period (3)
Year Ended October 31,1993 $0 7.00% $2,500,000 $ 105,200 7.00%
Year Ended October 31,1994:
Bank Loan (1) $5,000,000 6.98% $5,000,000 $4,315,000 6.81%
Year Ended October 31,1995:
Bank Loan (1) $2,500,000 8.81% $5,000,000 $4,958,300 8.74%
(1) Bank Loan represents borrowings under line of credit borrowing arrangement that matures
in fiscal 1996 and is reviewed annually for renewal .
(2) The average amount outstanding during the period was computed by dividing the total
daily outstanding principal balance by 365.
(3) The weighted average interest rate during the period was computed by dividing the actual
interest expense by the average amount outstanding.
</TABLE>
SCHEDULE X-SUPPLEMENTARY INCOME STATEMENT INFORMATION
HRE PROPERTIES
Three Years Ended October 31, 1995
(In thousands)
<TABLE>
<S> <C>
- ------------------------------------------------------------------------------------------------------------------------
COL. A COL. B
- ------------------------------------------------------------------------------------------------------------------------
Item Charged to
Costs and Expenses
- ------------------------------------------------------------------------------------------------------------------------
Year Ended October, 31
1995 1994 1993
1. Maintenance and repairs $ 730 $ 785 $ 619
2. Amortization of deferred charges $ 705 $ 545 $ 866
3. Real estate taxes $2,227 $1,960 $1,735
4. Royalties None None None
5. Advertising costs (a) (a) (a)
- -------------------------------------
(a) Amounts for advertising are not presented as such amounts are less
than 1% of total revenues.
</TABLE>
HRE PROPERTIES
OCTOBER 31, 1995
SCHEDULE XI- REAL ESTATE AND ACCUMULATED DEPRECIATION
(In thousands)
<TABLE>
<S> <C> <C> <C> <C>
<C>
- ------------------------------------------------------------------------------------------------------------------------
COL. A COL. B COL. C COL. D COL. E COL. F
- ------------------------------------------------------------------------------------------------------------------------
Cost Capitalized Subsequent Amount at Which Carried
Description/ Initial Cost to Trust to Acquisition at Close of Period (Note F)
Location Encumbrances Land Building & Carrying Building & Land Building & Total
Improvements Costs Improvements Improvements
- ------------------------------------------------------------------------------------------------------------------------
OPERATING
LEASES (Note (a) ):
- -----------------------------------
OFFICE BUILDINGS:
Denver, Colorado $0 $1,155 $10,257 $0 $1,712 $755 $10,169 $10,924
Houston, Texas 0 900 2,758 0 2,271 900 5,029 5,929
Greenwich, Connecticut 0 111 444 0 13 111 457 568
Greenwich, Connecticut 584 199 795 0 46 199 840 1,039
Southfield, Michigan 0 1,000 10,280 0 675 1,000 10,955 11,955
584 3,365 24,534 0 4,716 2,965 27,450 30,415
SHOPPING CENTERS:
Clearwater, Florida 5,606 3,689 17,273 0 2,844 3,689 15,317 19,006
Springfield, Mass 0 1,372 3,656 0 8,030 1,372 11,686 13,058
Farmingdale,New York 2,725 1,029 4,174 0 80 1,029 4,254 5,283
Somers, New York 2,483 821 2,600 0 30 821 2,630 3,451
Wayne, New Jersey 9,100 2,492 9,966 0 169 2,492 10,135 12,627
Meriden,Connecticut 15,000 5,000 20,309 0 370 5,000 20,679 25,679
Danbury,Connecticut 11,250 3,850 15,811 0 0 3,850 15,811 19,661
Carmel, NY 0 1,470 5,973 0 0 1,470 5,973 7,443
46,164 19,723 79,762 0 11,523 19,723 86,485 106,208
DEPARTMENT STORES:
Tempe, Arizona 0 378 1,518 0 970 378 2,488 2,866
Mesa, Arizona 0 440 1,631 0 989 440 2,620 3,060
Manassas, Virginia 0 283 1,723 0 42 283 1,765 2,048
0 1,101 4,872 0 2,001 1,101 6,873 7,974
- ----------------------------------------------------------------------------
COL.A COL.F COL. G/H COL.I
- -----------------------------------------------------------------------------
Life on which
depreciation
for buildings
and improvements
Accumulated Date in latest income
Description Depreciation Constructed statements is
and Location (Note (b)) or Acquired computed (Note (d))
- -------------------------------------------------------------------------------
OPERATING
LEASES (Note(a))
- -----------------
OFFICE BUILDINGS:
Denver, Colorado $3,207 1983 45
Houston, Texas 2,738 1975 40
Greenwich, Connecticut 20 1994 31.5
Greenwich, Connecticut 46 1993 31.5
Southfield, Michigan 3,858 1983 35
9,869
SHOPPING CENTERS:
Clearwater, Florida 5,794 1985 40
Springfield, Mass 4,891 1970 40
Farmingdale, New York 289 1993 31.5
Somers, New York 251 1992 31.5
Wayne, New Jersey 779 1992 31
Meriden, Connecticut 1,222 1993 31.5
Danbury, Connecticut 339 1994 31.5
Carmel, New York 12 1995 31.5
13,577
DEPARTMENT STORES
Tempe, Arizona 1,320 1970 40
Mesa, Arizona 1,386 1971 40
Manassass, Virginia 1,211 1972 40
3,917
</TABLE>
HRE PROPERTIES
OCTOBER 31, 1995
SCHEDULE XI- REAL ESTATE AND ACCUMULATED DEPRECIATION
(In thousands)
<TABLE>
<S> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------
COL. A COL. B COL. C COL. D COL. E
- ---------------------------------------------------------------------------------------------------------------
Cost Capitalized Amount at Which Carried
Initial Cost Subsequent to at Close of Period(Note F)
to Trust to Acquistion
Building & Carrying Building & Building &
Description Encumbrances Land Improvements Costs Improvements Land Improvements Total
- ----------------------------------------------------------------------------------------------------------------
REAL ESTATE LEASES SUBJECT TO OPERATING
LEASES (Note (a) ):
- -----------------------------------
INDUSTRIAL SERVICE CENTER:
Syracuse, New York $0 $253 $530 $0 $0 $253 $530 $783 $155
0 253 530 0 0 253 530 783 155
MIXED USE FACILITY: RETAIL/OFFICE:
Newington, New Hampshire
4,464 421 1,997 0 4,703 421 6,700 7,121 2,417
LAND:
Newington, New Hampshire
0 305 0 0 0 305 0 305 0
Denver, Colorado 0 1,199 0 0 0 1,199 0 1,199 0
0 1,504 0 0 0 1,504 0 1,504 0
TOTAL REAL ESTATE
SUBJECT TO
OPERATING LEASES $51,212 $26,367 $111,695 $0 $22,943 $25,967 $128,038 $154,005 $29,935
- -----------------------------------------------------------------------------------------------
COL.A COL.F COL. G/H COL. I
- -----------------------------------------------------------------------------------------------
Life on which
depreciation for buildings
Accumulated Date and improvements
Description Depreciation Constructed in latest income
and location (Note (b)) or Acquired statements is computed (Note(d))
- ------------------------------------------------------------------------------------------------
INDUSTRIAL SERVICE CENTER:
- --------------------------
Syracuse, New York $155 1973/1985 40
155
MIXED USE FACILITY: RETAIL/OFFICE:
- ----------------------------------
Newington, New Hampshire: 2,417 1979 40
LAND:
- ----
Newington, New Hampshire 0 1981 --
Denver, Colorado 0 1988 --
0
TOTAL REAL ESTATE SUBJECT
TO OPERATING LEASES $29,935
</TABLE>
HRE PROPERTIES
OCTOBER 31, 1995
SCHEDULE XI- REAL ESTATE AND ACCUMULATED DEPRECIATION
(In thousands)
<TABLE>
<S> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------
COL. A COL. B COL. C COL. D COL. E
- -------------------------------------------------------------------------------------------------------------------
Cost Capitalized Subsequent Amount at Which Carried
Description Initial Cost to Trust to Acquisition at Close of Period (Note F)
and Building & Carrying Building & Remaining
Location Encumbrances Land Improvements Costs Improvements Minimum Lease Residual
Payments Value
- ------------------------------------------------------------------------------------------------------------------
REAL ESTATE SUBJECT TO FINANCING
LEASES (Notes (c) and (e)):
- -----------------------------------
INDUSTRIAL DISTRIBUTION CENTERS:
(Leased to Chrysler Corporation)
St. Louis, Missouri 0 523 2,253 0 2,363 2,020 1,166
Dallas, Texas 6,000 193 2,266 0 4,195 3,227 841
Deferred Lease
Renewal Rights 0 0 0 0 305 0 305
6,000 716 4,519 0 6,863 5,247 2,312
INDUSTRIAL DISTRIBUTION CENTER:
(Leased to Firestone Tire and
Rubber Company):
Albany, Georgia 0 835 3,343 0 0 2,184 100
TOTAL REAL ESTATE
SUBJECT TO
FINANCING LEASES $6,000 $1,551 $7,862 $0 $6,863 $7,431 $2,412
- ----------------------------------------------------------------------------------
COL.A COL. G/H
- ----------------------------------------------------------------------------------
Net Investment
in Properties Date
Description Unearned Subject to Constructed
and Location Income Financing Leases or Acquired
- ----------------------------------------------------------------------------------
REAL ESTATE SUBJECT
TO FINANCING lEASES (Notes ((c) and (e)):
- -----------------------------------------
INDUSTRIAL DISTRIBUTION CENTERS:
(Leased to Chrysler Corporation)
St. Louis, Missouri (510) 2,676 1970
Dallas, Texas (739) 3,329 1970
Deferred Lease
Renewal Rights 0 305
(1,249) 6,310
INDUSTRIAL DISTRIBUTION CENTER:
(Leased to Firestone Tire and
Rubber Compnay)
Albany, Georgia: (486) 1,798 1972
TOTAL REAL ESTATE
SUBJECT TO FINANCING LEASES (1,735) 8,108
</TABLE>
HRE PROPERTIES
OCTOBER 31, 1995
SCHEDULE XI- REAL ESTATE AND ACCUMULATED DEPRECIATION (Continued)
- --------------------------------------------------
(In thousands)
<TABLE>
<S> <C> <C> <C>
NOTES: 1995 1994 1993
(a) RECONCILIATION OF PROPERTIES OWNED SUBJECT TO OPERATING
LEASES
Balance at beginning of year $132,085 $105,926 $124,404
Property improvements during the year 2,111 907 1,091
Property acquired during the year 26,809 25,816 6,197
Writedown in carrying value of properties (7,000) --- ---
Property sold or disposed of during the year --- (564) (25,766
Balance at end of year $154,005 $132,085 $105,926
(b) RECONCILIATION OF ACCUMULATED DEPRECIATION
Balance at beginning of year $26,173 $22,837 $27,985
Provision during the year
charged to income 4,099 3,531 3,497
Property sold or disposed
of during the year (337) (195) (8,645)
Balance at end of year $29,935 $26,173 $22,837
(c) RECONCILIATION OF PROPERTIES OWNED SUBJECT TO
FINANCING LEASES-
Balance at beginning of year $14,719 $16,190 $17,532
Recovery of investment in
property owned subject to
financing leases (1,355) (1,471) (1,342)
Property sold during the year (5,256) ---- ------
Balance at end of year $8,108 $14,719 $16,190
(d) Tenant improvement costs are depreciated over the life of
the related leases, which range from 3 to 25 years.
(e) The difference between the initial costs to the Trust
and costs capitalized subsequent to acquisition and the amount
at which carried at close of period represents accumulated
depreciation for the period prior to classification of these
the period thereafter.
(f) The amounts at which the Denver, Colorado office building and the Clearwater,
Florida shopping center are carried reflects writedowns of $2,200,000 and
$4,800,000 respectively to reflect these properties at net realizable values.
(g) The aggregate cost basis for Federal income tax purposes at October 31,1995
is $177,870,000.
</TABLE>
HRE PROPERTIES
OCTOBER 31, 1995
SCHEDULE XII- MORTGAGE LOANS ON REAL ESTATE
<TABLE>
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------
COL. A COL. B COL. C COL.D COL. E COL. F
- ------------------------------------------------------------------------------------------------------------------------
Face Amount Carrying Amount
of Mortgages of Mortgages
Interest Rate Final Maturity Periodic (Note (b)) (Note (a) )
Description Coupon Effective Date Payment Terms (In Thousands) (In Thousands)
- ------------------------------------------------------------------------------------------------------------------------
I. FIRST MORTGAGE LOANS ON BUSINESS PROPERTIES (NOTE (c) and (d):
Department Store:
Clayton County, Georgia 9% 9% 10-30-1999 Principal payable $143 $143
In full at maturity.
Retail Store: Interest paid currently.
Fall River, Massachusetts 9% 14% 04-01-2013 Payable in monthly 1,256 931
installments of $11,920.
Retail Store:
Erie, Pennsylvania 9% 14% 07-01-2013 Payable in monthly 1,147 847
installments of $10,787.
Retail Store:
Riverside, California 9% 12% 01-15-2013 Payable in quarterly 2,081 1,689
installments of $54,313.
Total First Mortgage Loans 4,627 3,610
II. SECOND MORTGAGE LOAN ON BUSINESS PROPERTY (Notes (c) and (e) ):
Retail Store:
Riverside, California 9% 12% 01-15-2001 Payable in quarterly
installments of $21,135. 350 327
TOTAL MORTGAGE LOANS ON REAL ESTATE $4,977 $3,937
</TABLE>
<TABLE>
<S> <C> <C> <C>
SCHEDULE XII- MORTGAGE LOANS ON REAL ESTATE (continued)
NOTES TO SCHEDULE XII
Year Ended October 31,
Reconciliation of Mortgage Loans on Real Estate
1995 1994 1993
(a) Balance at beginning of period: $7,763 $8,917 $8,978
Deductions during current period:
Sale Of Mortgage (3,750) ---- ----
Collections of principal and
amortization of discounts (76) (68) (61)
Writedown in carrying value of Mortgage Loan ----- (1,086) ----
Balance at close of period: $3,937 $7,763 $8,917
(b) The aggregate cost basis for Federal income tax purposes is equal to the face amount of
the mortgages.
(c) At October 31,1995 no mortgage loans were delinquent in payment of currently due principal
or interest.
(d) There are no prior liens for any of the First Mortgage Loans on Real Estate.
(e) The First Mortgage Loan on this property is held by the Trust.
</TABLE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
HRE PROPERTIES
By: /S/ CHARLES J. URSTADT
Charles J. Urstadt
Chairman and President
Dated: January 26, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the date indicated.
/s/ CHARLES J. URSTADT January 26, 1996
Charles J. Urstadt
President and Trustee
(Principal Executive Officer)
/s/ JAMES R. MOORE January 26, 1996
James R. Moore
Senior Vice President - Chief
Financial Officer
(Principal Financial Officer
and Principal Accounting Officer)
/s/ E. VIRGIL CONWAY January 26, 1996
oE. Virgil Conway
Trustee
/s/ ROBERT R. DOUGLASS January 26, 1996
Robert R. Douglass
Trustee
/s/ PETER HERRICK January 26, 1996
Peter Herrick
Trustee
/s/ GEORGE H. C. LAWRENCE January 26, 1996
George H. C. Lawrence
Trustee
/s/ PAUL D. PAGANUCCI January 26, 1996
Paul D. Paganucci
Trustee
/s/ JAMES O. YORK January 26, 1996
James O. York
Trustee
INDEX TO EXHIBITS
Exhibit
(3) Articles of Incorporation and By-laws.
3.1 Fourth Amended and Restated Declaration of Trust of the Trust, as
amended, to date. (incorporated herein by reference to Exhibit 3.1
of the Registrant's Quarterly Report on Form 10-Q for the quarter
ended April 30, 1995.)
3.2 By-laws of the Trust, as amended (incorporated by reference to
Exhibit 4.2 of the Registrant's Registration Statement on Form S-8
(No. 33-41408)).
(4) Instruments Defining the Rights of
Security Holders, Including Indentures:
4.1 Common Shares: See Exhibit 3.1 hereto.
4.2 Preferred Shares: See Exhibit 3.1 hereto.
4.3 Preferred Share Purchase Rights: See Exhibits 3.1 and 10.3 hereto.
(10) Material Contracts.
10.1 Form of Indemnification Agreement entered into between the
Registrant and each of its Trustees and for
and officers of the Trust (incorporated herein by reference to
Exhibit 10.1 of the Registrant's Annual Report on Form 10-K for
the year ended October 31, 1989).*
10.2 Amended and Restated Change of Control Agreement between the
Registrant and James R. Moore dated November 15, 1990 (incorporat-
ed herein by reference to Exhibit 10.3 of the Registrant's Annual
Report on Form 10-K for the year ended October 31, 1990).*
10.3 Rights Agreement between the Trust and The First National Bank of
Boston, as Rights Agent, dated as of October 28, 1988 (incorporat-
ed herein by reference to Exhibit 1 of the Registrant's Current
Report on Form 8-K dated October 28, 1988).
10.4 Change of Control Agreement dated as of June 12, 1990 between the
Registrant and Raymond P. Argila (incorporated herein by reference
to Exhibit 10.7 of the Registrant's Annual Report on Form 10-K for
the year ended October 31, 1990).*
10.4.1 Agreement dated December 19, 1991 between the Registrant and
Raymond P. Argila amending the Change of Control Agreement dated
as of June 12, 1990 between the Registrant and Raymond P. Argila
(incorporated herein by reference to Exhibit 10.6.1 of the Regist-
rant's Annual Report on Form 10-K for the year ended October 31,
1991).*
10.5 Change of Control Agreement dated as of December 20, 1990 between
the Registrant and Charles J. Urstadt (incorporated herein by
reference to Exhibit 10.8 of the Registrant's Annual Report on
Form 10-K for the year ended October 31, 1990).*
10.6 Amended and Restated HRE Properties Stock Option Plan (incorporat-
ed herein by reference to Exhibit 10.8 of the Registrant's Annual
Report on Form 10-K for the year ended October 31, 1991 and Exhib-
it 10.6.1 of the Registrant's Annual Report on Form 10-K for the
year ended October 31, 1994).*
10.7 Change of Control Agreement dated June 9, 1993 between the Regis-
trant and Willing L. Biddle. *
(21) Subsidiaries.
21.1 List of Trust's subsidiaries (incorporated by reference to Exhibit
22.1 of the Registrant's Annual Report on Form 10-K for the year
ended October 31, 1988).
(23) Consents of Experts and Counsel.
23.1 The consent of Arthur Andersen LLP to the incorporation by refer-
ence of their reports included herein into
and in the Registrant's Registration Statements on Form S-3 (No.-
33-57119), Form S-8 (No.2-93146) and Form S-8 (No. 33-41408) is
filed herewith as part of this report.
(27) Financial Data Schedule.
27.1 Financial Data Schedule
*Management contract, compensatory plan or arrangement required to be filed as
an exhibit to this Annual Report on Form 10-K pursuant to Item 14(c).
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
incorporation of our report included in this Annual Report
on Form 10-K for the year ended October 31, 1995 of HRE
Properties, into its previously filed Registration Statement
on Form S-3 (No.33-57119) and its previously filed Registra-
tion Statements on Form S-8 (No.2-93146 and No. 33-41408),
and to the reference to our Firm under the caption "Experts"
in said Registration Statements.
ARTHUR ANDERSEN LLP
New York, New York
January 26, 1996
CHANGE OF CONTROL AGREEMENT
This Agreement dated as of June 9, 1993 between HRE
Properties (the "Trust") and Willing L. Biddle ("Employee").
The Employee is currently employed by the Trust and the
Employee's services are valued by the Trust.
The Trust recognizes that the possibility of a change
of control of the Trust may result in the departure or
distraction of the Employee, to the detriment of the Trust
and its shareholders.
The Trust wishes to assure the Employee of fair severance
should his employment terminate in certain specified
circumstances following a change of control.
In consideration of the Employee' continued employment
by the Trust, and for other good and valuable consideration,
the parties hereto hereby agree as follows:
1. Termination Benefits. If the employment of
the Employee is terminated by the Employee for
Good Reason or by the Trust for any reason
other than for Cause, within 18 months following
a Change of Control,
(a) the Trust shall pay Employee an amount
equal to 6 months of Employee's rate of
base salary (exclusive of any bonus or
other benefit) in effect at the date of
the Change of Control. Such amount
shall be payable in cash in a lump sum
within 45 days after such termination;
and
(b) the Trust shall continue in force and
effect for 6 months after termination
(the "Continuation of Benefits Period")
an at the same level and for the benefit
of the Employee's family, where applicable,
all life insurance, disability,
medical and other benefit programs or
arrangements in which the Employee is
participating or to which the Employee
is entitled at the date of the Change of
Control, provided that the Employee's
continued participation is possible
under such programs and arrangements.
In the event that such continued participation
is not possible, the Trust shall
arrange to provide the Employee with
benefits similar to those which Employee
would be entitled to receive under such
programs and arrangements. Without
limiting the foregoing, the benefits
continuation shall include a lump sum
cash payment to the Employee within 45
days of such termination in lieu of
Trust contributions on behalf of the
Employee under the HRE Properties Profit
Sharing and Savings Plan. the amount of
such payment shall be the product of (i)
the number of months in the Continuation
of Benefits Period and (ii) 1/12 of 7%
(or such other percentage reflected in
the Trust's most recent annual contribution
determined prior to the Change of
Control) times the Employee's annual
salary rate in effect immediately prior
to the termination date or, if greater,
the Employee's annual salary rate in
effect immediately prior to the Change
of Control.
Payments under this Section 1 shall be reduced
to the extent, but only the extent, necessary
to provide that no "payment in the nature of
compensation" to (or for the benefit of) the
Employee which is "contingent" on the Change
of Control would fail to be deductible for
federal income tax purposes by reason of section
280G of the Internal Revenue Code of
1986, as amended (the "Code"). As used in
this Section, the words "payment in the nature
of compensation" and "contingent" shall be
construed and applied in a manner consistent
with the meaning of those words under section
280G of the code and regulations thereunder.
The determination as to whether and to what
extent a reduction in payments under this
Section 1 is necessary to avoid the nondeductibility
of any payment under section 280G of
the Code shall be made at the Trust's expense
by Arthur Andersen & Co. or by such other
certified public accounting firm as the Compensation
Committee of the Trustees may designate
prior to a Change of Control. In the
event of any underpayment or overpayment under
this Section 1, as determined by Arthur Andersen & Co.
(or such other firm as may have been
designated in accordance with the preceding
sentence), the amount of such underpayment or
overpayment shall forthwith be paid to the
Employee or refunded to the Trust, as the case
may be, with interest rate at the applicable
federal rate provided for in section 7872(f)(-2) of the Code.
2. Definitions. The definitions in Appendix A
are hereby incorporated in this Agreement.
3. No Duty to Mitigate Damages. The Employee's
benefits under this Agreement shall be considered
severance pay in consideration of his
past service and his continued service from
the date of this Agreement, and his entitlement
thereto shall neither be governed by any
duty to mitigate his damages by seeking further
employment nor offset by any compensation
which he may receive from future employment.
4. Withholding. Anything herein to the contrary
notwithstanding, all payments required to be
made by the Trust hereunder to the Employee
shall be subject to the withholding of such
amounts, if any, relating to tax and other
payroll deductions as the Trust may reasonably
determine it should withhold pursuant to any
applicable law or regulation.
5. Legal Fees and Expenses; Interest. The Trust
shall pay all reasonable legal fees and expenses
incurred by the Employee in successfully
obtaining any right or benefit to which
the Employee is entitled under this Agreement.
Any amount payable under this Agreement that
is not paid when due shall accrue interest at
the base rate as from time to time in effect
at the First National Bank of Boston, until
paid in full.
6. Arbitration. Any dispute or controversy arising
under or in connection with this Agreement
shall be settled exclusively by arbitration in
New York City in accordance with the rules of
the American Arbitration Association then in
effect. The parties shall attempt to select a
mutually agreeable arbitrator who shall promptly
convene a hearing to resolve submitted
disputes. If the parties are unable to agree
upon such an arbitrator within 20 days from
initial contact, the American Arbitration
Association shall be requested by either party
to submit a list of at least seven arbitrators
from which the parties shall attempt to select
one by agreement. In the event they do
not so agree, they shall alternately strike
names from this list beginning with the Employee,
until a single name remains. The
remaining person shall be appointed to hear
and decide the parties' disputes, drawing his
authority and the bases for decision from this
Agreement. The arbitrator will resolve all
submitted matters in a written decision with
expedition. Judgement may be entered on the
arbitrator's award in any court having jurisdiction.
7. Notices. All notices shall be in writing and
shall be deemed given five days after mailing
in the continental United States by registered
or certified mail, or upon personal receipt
after delivery, telex, telecopy or telegram,
to the party entitled thereto at the address
stated below or to such changed address as the
addressee may have given by a similar notice:
To the Trust: HRE Properties
530 Fifth Avenue
New York, New York 10036
To the Employees: At his home address,
as last shown on the
records of the Trust
8. Severability. In the event that any provision
of this Agreement shall be determined to be
invalid or unenforceable, such provision shall
be enforceable in any other jurisdiction in
which valid and enforceable and in any event
the remaining provisions hereof shall remain
in full force and effect to the fullest extent
permitted by law.
9. Binding Agreement. This Agreement shall be
binding upon and inure to the benefit of the
parties and be enforceable by the Employee's
personal or legal representatives or successors.
If the Employee dies while any amounts
would still be payable to him hereunder, such
amounts shall be paid to the Employee's estate.
This Agreement shall not otherwise be
assignable by the Employee.
10. Successors. This Agreement shall inure to and
be binding upon the Trust's successors. The
Trust will require any successor to all or
substantially all of the businesses and/or
assets of the Trust by sale, merger (where the
Trust is not the surviving entity), lease or
otherwise, to assume expressly this Agreement.
If the Trust shall not obtain such
agreement prior to the effectiveness of any
such succession, the Employee shall have all
rights resulting from termination of the Employee's
employment under this Agreement. This
Agreement shall not otherwise be assignable by
the Trust.
11. Amendment or Modification; Waiver. This Agreement
may not be amended unless agreed to in
writing by the Employee and the Trust. No
waiver by either party of any breach of this
Agreement shall be deemed a waiver of a subsequent breach.
12. Continued Employment. This agreement shall
not confer upon the Employee any right of
continued or further employment by the Trust
or any right to compensation or benefits from
the Trust except the right specifically stated
herein to certain severance benefits, and
shall not limit the right of the Trust to
terminate the Employee's employment at any
time, except as may be otherwise provided in a
written employment agreement between the Trust
and the Employee.
13. Governing Law. The validity, interpretation,
performance and enforcement of this Agreement
shall be governed by the law of The Commonwealth
of Massachusetts.
14. Liability of Shareholders. This Agreement is
executed by or on behalf of the Trustees of
the Trust solely in their capacity as such
Trustees, and shall not constitute their personal
obligation either jointly or severally
in their individual capacities. The shareholders,
Trustees, officers or agents of the
Trust shall not be personally liable for any
obligations of the Trust under this Agreement
and all parties hereto shall look solely to
the property of the Trust for the payment of
any claim hereunder.
IN WITNESS WHEREOF the parties have duly executed the
Agreement as of the above date.
/s/WILLING L. BIDDLE
Employee:
Willing L. Biddle
HRE PROPERTIES
By:/s/CHARLES J URSTADT
Title: President
APPENDIX A TO CHANGE OF CONTROL AGREEMENT
"Change of Control" shall mean the occurrence of any
one of the following events:
(a) any Person becomes the owner of 20% or more of
the Trust's Common Shares and thereafter individuals
who were not Trustees of the Trust
prior to the date such Person became a 20%
owner are elected as Trustees pursuant to an
arrangement or understanding with, or upon the
request of or nomination by, such Person and
constitute at least two of the Trustees; or
(b) there occurs a change of control of the Trust
of a nature that would be required to be reported
in response to Items 1a of Form 8-K
pursuant to Section 13 or 15 under the Securities
Exchange Act of 1934 ("Exchange Act"), or
in any other filing by the Trust with the
Securities and Exchange Commission (the "Commission"); or
(c) there occurs any solicitation of proxies by or
on behalf of any Person other than the Trustees
of the Trust and thereafter individuals
who were not Trustees prior to the commencement
of such solicitation are elected as Trustees
pursuant to an arrangement or understanding
with, or upon the request of or nomination
by, such Person and constitute at least two of
the Trustees.
(d) the Trust executes an agreement of acquisition,
merger or consolidation which contemplates
that (i) after the effective date provided for
in the agreement, all or substantially
all of the business and/or assets of
the Trust shall be owned, leased or otherwise
controlled by another corporation or other
entity and (ii) individuals who are trustees
of the Trust when such agreement is executed
shall not constitute a majority of the trustees
or board of directors of the survivor or
successor entity immediately after the effective
date provided for in such agreement;
provided, however, for purposes of this paragraph (c)
that if such agreement requires as a
condition precedent approval by the Trust's
shareholders of the agreement or transaction,
a Change of Control shall not be deemed to
have taken place unless and until such approval is secured.
"Common Shares" shall mean the then outstanding Common
Shares of the Trust plus, for purposes of determining the
ownership of any Person, the number of unissued shares of
Common Shares which such Person has the right to acquire
(whether such right is exercisable immediately or only after
the passage of time) upon the exercise of conversion rights,
exchange rights, warrants or options or otherwise.
"Person" shall have the meaning used in Section 13(d)
of the Exchange Act, as in effect on December 31, 1984. A
Person shall be deemed to be the "owner" of any common
Shares:
(a) of which such Person would be the "beneficial
owner", as such term is defined in Rule 13d-3
promulgated by the Commission under the Exchange
Act, as in effect on December 31, 1984;or
(b) of which Person would be the "beneficial owner",
as such term is defined under Section 16
of the Exchange Act and the rules of the Commission
promulgated thereunder, as in effect
on December 31, 1984; or
(c) which such Person or any of its Affiliates or
Associates (as such terms are defined in Rule
12b-2 promulgated by the Commission under the
Exchange Act, as in effect on December 31,
1984), has the right to acquire (whether such
right is exercisable immediately or only after
the passage of time) pursuant to any agreement,
arrangement or understanding or upon the
exercise of conversion rights, exchange
rights, warrants or options or otherwise.
Termination for "Cause" shall mean termination of the
Employee's employment by the Trust because of dishonesty,
conviction of a felony, gross neglect of duties (other than
as a result of disability or death), or conflict of interest
(other than any conflict of interest which has been fully
disclosed to the Trustees and has been determined by them
not to be material), which, in the case of gross neglect or
conflict, shall continue for 30 days after the Trust gives
written notice to the Employee requesting the cessation of
such gross neglect or conflict, as the case may be.
Termination for "Good Reason" shall have the following
meanings.
Termination for "Good Reason" shall mean the voluntary
termination by the Employee of his employment within 90 days
after the occurrence of any one of the following events
without the Employee's express written consent:
(a) the assignment to him of any duties inconsistent
with his positions, duties, responsibilities,
reporting requirements, and status with
the Trust immediately prior to a Change of
Control, or a substantive change in the
Employee's titles or offices as in effect immediately
prior to a Change of Control, or any
removal of the Employee from or any failure to
reelect him to such positions, except in connection
with the termination of the Employee's
employment by the Trust for Cause or by the
Employee other than for good Reason; or any
other action by the Trust which results in a
diminishment in such position, authority,
duties or responsibilities, other than an
insubstantial and inadvertent action which is
remedied by the Trust promptly after receipt
of notice thereof given by the Employee; or
(b) if the Employee's base salary for any fiscal
year is less than 100 percent of the base
salary paid to the Employee in the completed
fiscal year immediately preceding the Change
of Control, or if the Employee's total cash
compensation opportunities, including salary
and incentives, for any fiscal year are less
than 100 percent of the total cash compensation
opportunities made available to the
Employee in the completed fiscal year immediately
preceding the Change of Control; or
(c) the failure of the Trust to continue in effect
any benefits or perquisites, or any pension,
life insurance, medical insurance or disability
plan in which the Employee was participating
immediately prior to a Change of control
unless the Trust provides the employee with a
plan or plans that provide substantially similar
benefits, or the taking of any action by
the Trust that would adversely affect the
Employee's participation in or materially
reduce the Employee's benefits under any of
such plans or deprive the Employee of any
material fringe benefit enjoyed by the Employee
immediately prior to a Change of Control; or
(d) any relocation of the Employee outside Manhattan
in New York City; or
(e) the Trust sells or otherwise disposes of, in
one transaction or a series of related transactions,
assets or earning power aggregating
more than 50% of the assets (taken at asset
value as stated on the books of the Trust
determined in accordance with generally accepted
accounting principles consistently
applied) or earning power of the Trust to any
other Person or Persons; or
(f) any other breach by the Trust of any provision
of this Agreement, provided that the same
shall have continued unremedied for a period
of 30 days after the Employee gives notice to
the Trust requesting that the Trust remedy the
same.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1995
<PERIOD-END> OCT-31-1995
<CASH> 7097000
<SECURITIES> 0
<RECEIVABLES> 2691000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 162113000<F1>
<DEPRECIATION> 29935000
<TOTAL-ASSETS> 149099000
<CURRENT-LIABILITIES> 3514000
<BONDS> 57212000
<COMMON> 123844000
0
0
<OTHER-SE> (37262000)
<TOTAL-LIABILITY-AND-EQUITY> 149099000
<SALES> 0
<TOTAL-REVENUES> 22853000
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 14275000
<LOSS-PROVISION> 7000000<F3>
<INTEREST-EXPENSE> 5281000
<INCOME-PRETAX> (3703000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3703000)
<DISCONTINUED> 0
<EXTRAORDINARY> 7567000<F2>
<CHANGES> 0
<NET-INCOME> 3864000
<EPS-PRIMARY> .72
<EPS-DILUTED> .72
<FN>
<F1>This item consists of Properties Owned
and Properties Available for Sale.
<F2>This item consists of Gains on Sales of Properties
<F3>This item consists of Writedown in carrying value of
investments
</FN>
